The latest FATF Recommendations update reflects the Financial Action Task Force’s (“FATF”) role as the global standard-setter for combating money laundering and terrorist financing (“ML/TF”). The FATF Recommendations provide a comprehensive framework of measures that countries should implement to protect the international financial system. Specifically, the recommendations cover a wide range of topics. These include the legal and institutional framework, and preventive measures for the financial sector and designated non-financial businesses and professions. They also cover transparency, beneficial ownership, and the responsibilities and powers of competent authorities and international cooperation.
FATF Recommendations Update: February 2025
Consequently, FATF regularly reviews and updates the recommendations, to ensure they remain effective, relevant, and current in addressing new and evolving threats. This FATF Recommendations update shifts focus to the proportionality of Anti-Money Laundering and Countering the Financing of Terrorism (“AML/CFT”) measures. It encourages countries to allow simplified measures in lower-risk areas.
Some of these changes are detailed as follows:
Identification of lower risk areas
Notably, the FATF has indicated that countries should identify sectors that present a lower risk of ML/TF. This process often involves conducting national or sub-national risk assessments. The purpose of this exercise is to enable financial institutions and designated non-financial businesses and professions (“DNFBPs”) to implement AML/CFT measures proportionate to the actual risks involved.
However, there are circumstances when the exposure of a customer to the risk of ML/TF may be lower. In such circumstances, provided the financial institution has adequately analysed the risk in relation to that country and relevant factors, the country should allow its financial institutions to apply simplified customer due diligence measures, such as:
- Delaying customer and beneficial owner identification until after the business relationship is established. This may trigger verification if transactions exceed a certain threshold,
- Reducing the frequency of customer identification updates,
- Lessening the intensity of ongoing transaction monitoring, potentially based on a minimum transaction amount,
- Inferring the purpose and nature of the business relationship from transaction patterns or the established business relationship type, rather than collecting specific information.
Simplified customer due diligence (“CDD”)
In conjunction with identifying lower-risk areas, FATF recommends that countries provide guidance and information to financial institutions and DNFBPs. This covers possible approaches for implementing simplified measures where risks are assessed to be lower.
FATF Recommendations Update: The Principle of Proportionality
Importantly, the FATF Recommendations update revises the language from ‘commensurate with’ to ‘proportionate to’. This change is integral to the risk-based approach that the FATF advocates for combating ML/TF.
In the context of the updated FATF Recommendations, the term ‘proportionate’ refers to a measure or action appropriately aligned with the level of identified risk. Ultimately, it underscores the importance of mitigating risks effectively. This means ensuring measures taken are in suitable correspondence with the assessed level of risk.
Navigate Tomorrow with Curia Regis
Navigating the evolving regulatory landscape for AML/CFT standards requires a deep understanding. This means bridging global standards with local requirements and implementation. At Curia Regis, we specialise in helping financial institutions interpret and apply global requirements effectively. We also help ensure their business remains viable on the ground. Additionally, we can assist your organisation in conducting thorough risk assessments, developing proportionate AML/CFT strategies, and ensuring compliance with the latest regulatory updates. Contact us today to discuss how we can help your business adapt to these critical regulatory changes. We can help ensure sustained compliance in an increasingly complex global financial environment.
